Friday, May 15, 2009

I read dozens of earnings reports every week. The one consistent trend I have seen over the past 2 years has been a steady deterioration in earnings from industry to industry. First it was the housing stocks. Then the retailers. Then the restaurant stocks. Then the banks. So on and so forth. But two areas have held up relatively well - agriculture and healthcare names. Although the world is in the middle of the worst post-war recession many of these companies continue to post outstanding earnings. When you consider the big picture trends surrounding the ag names it’s hard not to like the potential long-term returns of companies in the Ag sector. That doesn’t mean they won’t face some tough sledding in the coming 18 months, but the long-term trends are overwhelmingly positive.

The incredible stability in food production and the projected explosion in global population makes the likelihood of much higher food prices very good. These basic long-term trends explain why many of these firms are sitting on very strong balance sheets despite a horrific “hundred year storm” in the financial markets.

Click for larger image

Click for larger image

It’s hard to imagine a scenario in which ag companies don’t continue to crank out strong earnings considering the big picture trends. After all, food is the ultimate consumer staple.